SESSION 19: INSURING Talking Points Insuring 1. Insurance is a product that allows people to pay a fee (called a premium) now to transfer the costs of potential loss to a third party. A premium is the amount a person pays to an insurance company for protection. Typically, the price of insurance increases as the amount of protection increases. 2. Insurance can be purchased for almost any kind of potential loss, but the most common types of insurance are home, automobile, medical, dental, disability, life, and renters.

Session 19: Talking Points, Cont’d Insuring 3. Insurance companies pool premiums from many people to cover the losses of a few (and, much like banks, they take the pooled premiums and make investments). 4. Insurance companies set premiums to cover the expected losses plus a rate of return for the company.

Session 19: Talking Points, Cont’d Insuring 5. Choosing the right amount of insurance is a matter of weighing the benefits of additional protection, or coverage (lower losses in the case of a covered event), against the costs (the premium, any uncovered losses, and other opportunity costs). 6. Most people pay more for insurance than what it will save them in terms of losses, while some people pay less for insurance than what it will cost them in terms of losses. Unfortunately, when deciding how much insurance to buy, people don’t know in which groups they will end up.